Last time we looked at where our health care funds in the US are spent. At more than one-sixth of our GDP, it’s undeniably a huge factor in our financial lives. Who pays for all this? Ultimately, of course, we all do—but the mechanisms by which this happens may surprise you.

Since non-personal spending ($407 billion) is accounted for somewhat differently at the federal level, our focus here is just on the $2.2 trillion in Personal Health Care (PHC) spending in 2010. A similar pie chart as in the previous post, but this time broken out by funding source, looks like this (figures in millions):

About one-third of PHC spending ($746 billion) is by private health insurance companies—Aetna, ‘the Blues’, Cigna, Humana, United, Wellpoint, and smaller companies. Medicare, federal health insurance for the elderly, accounts for nearly a quarter of spending ($494 billion). Medicaid, a joint federal-state program for the poor and disabled, pays for $372 billion. Of that, about two-thirds is federal, one-third from state and local sources.

Other federal government programs pay insurance for people serving in the military (DOD), veterans of military service, and otherwise-uninsured children (CHIP), a total of $92 billion. Total government spending on personal health care, then, is $957 billion, or 44 percent of all spending.

‘Other Third Parties’ – things like healthcare provided at the worksite (flu shots and blood tests, for example) and philanthropic organizations—pay $183 billion.

Finally, Out-of-Pocket expenditures are $300 billion. These are expenditures paid for by the consumer of the health care service (or her family). So about 14 percent—one dollar in every seven—is paid for by the person receiving the care. This basically comes from people who have no insurance, or goes for medical expenses that are not covered by insurance, or for the personal charges (co-pays and deductibles) that individuals pay in addition to their premiums (which are often paid by an employer).

Looked at the other way around, 86 percent—six of every seven dollars—of personal health spending comes from a source other than from the person who receives the care. In that sense, for better and for worse, the US healthcare system is in effect already highly ‘socialized’.

How does this unusual situation affect health care economics? I’ll give you my view next time.

SOURCE: Analysis by The Knowledge Agency® of data from the Centers for Medicare and Medicaid Services

About this site

COMPETING IN THE KNOWLEDGE ECONOMY is written by Timothy Powell, an independent researcher and consultant in knowledge strategy. Tim is president of The Knowledge Agency® (TKA) and serves on the faculty of Columbia University's Information and Knowledge Strategy (IKNS) graduate program.

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"During my more than three decades in business, I've served more than 100 organizations, ranging from Fortune 500s to government agencies to start-ups. I document my observations here with the intention that they may help you achieve your goals, both professional and personal.

"These are my opinions, offered for your information only. They are not intended to substitute for professional advice."

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